Compound Interest Math Definition

This means while calculating compound interest you add up the previous interest earned to the initial principal amount.

Compound interest math definition. The simplest definition of compound interest is the interest on a deposit or loan that is calculated both on the amount deposited borrowed plus the previous interest. P is the principal the initial amount you borrow or deposit r is the annual rate of interest percentage n is the number of years the amount is deposited or borrowed for. Compound interest is calculated based on the principal interest rate apr or annual percentage rate and the time involved. Finds the present value when you know a future value the interest rate and number of periods.

Work out the interest. R fv pv 1 n 1. R interest rate as a decimal value and. Compound interest definition compound interest is the interest calculated on the principal and the interest accumulated over the previous period.

Where interest is calculated on both the amount borrowed plus previous interest. Compound interest refers to the phenomenon whereby the interest associated with a bank account loan or investment increases exponentially rather than linearly over time. That definition is not. Illustrated definition of compound interest.

This addition of interest to the principal is called compounding. And by rearranging that formula see compound interest formula derivation we can find any value when we know the other three. Calculating interest on both the amount borrowed plus previous interest. Usually calculated one or more.

N number of periods. Pv fv 1 r n. It is different from the simple interest where interest is not added to the principal while calculating the interest during the next period. Compound interest the compound interest can be found with the formula.

Compound interest arises when interest is added to the principal so that from that moment on the interest that has been added also itself earns interest.